Oil hits six-week low, storm concern fades

By Peter Graff and Alex Lawler

LONDON (Reuters) - Oil fell $5 a barrel to a six-week low on Tuesday as a tropical storm moving over the Gulf of Mexico was expected to miss most major oil and gas installations.

The losses come after the biggest weekly price decline in oil's history last week that chopped $17 dollars off the cost of a barrel as dealers focused on mounting U.S. economic troubles and sliding demand.

"Dolly passing and recognition of deteriorating global economic conditions," said Mike Fitzpatrick, vice president at MF Global, commenting on crude's slide.

U.S. crude futures fell $5.03 to $126.01 a barrel by 3:20 p.m. GMT (11:20 a.m. EDT). London Brent was off $4.50 at $128.11.

Tropical Storm Dolly, which is expected to become a hurricane within two days before hitting the coast near the border of Mexico and Texas, has triggered only minor production shutdowns from offshore oil platforms.

Exxon Mobil (XOM.N: Quote, Profile, Research, Stock Buzz) and Anadarko (APC.N: Quote, Profile, Research, Stock Buzz) said Tuesday they trimmed output slightly as a precaution against the high winds and seas, and other companies said they were evacuating workers in the path of the storm.

But oil dealers said the overall effect of Dolly on the oil patch would likely be very light.

"Barring a veer north, the risks of an oil price disturbing event are low," Citi analysts said in a research note. 

Oil prices have fallen more than 14 percent over the past 10 days from a July 11 high of more than $147.

Simon Wardell of Global Insight in London said it was still not clear whether the price slide had finished.

"It did fall an awfully long way so some people may be putting more money in," he said.

Oil supplies have grown more comfortable as demand for gasoline has fallen in the United States in response to high prices and worries about the economy.

The next set of government data on U.S. oil inventories, for release on Wednesday, was expected to show crude stocks had fallen by 500,000 barrels, according to a Reuters poll of analysts. <EIA/S>

Crude stocks unexpectedly rose last week by 3.0 million barrels, helping to drive oil prices lower.

The market appeared little effected by reports of a halt of exports from Iraq's northern fields through Turkey due to a legal dispute and a delay of several days in Iraqi shipments from the southern port of Basra due to shipping congestion.

(Additional reporting by Richard Valdmanis and Janet McGurty in New York, Annika Breidthardt in Singapore; Editing by Marguerita Choy)